Lure of Anglo’s copper mines could test BHP’s spending resolve
BHP needs to offer at least a 40% premium over Anglo's share price for a new takeover bid, but its CEO has committed to spending discipline.
BHP Group Ltd.’s proposal for a $39 billion takeover of rival Anglo American Plc is all about securing plenty of copper supplies — so now, the potential deal is throwing uncertainty over the future for Anglo’s massive fertilizer mine in England.
That’s largely because BHP is already building its own giant fertilizer project in Canada, called Jansen, to which it’s already committed more than $10 billion. With an accelerated expansion planned for Jansen, BHP is unlikely to be interested in also going big on Anglo’s Woodsmith site.
Underscoring the doubt is the fact that the Woodsmith project involves polyhalite, a relatively obscure fertilizer product with unproven demand. The project has a checkered past — its previous owner Sirius Minerals Plc rode a wave of retail investor enthusiasm to develop it, only to fail to raise the final piece of financing.
If BHP is successful with its takeover deal, it would spark the industry’s biggest shakeup in more than a decade. BHP, already the largest miner, would gain control of roughly 10% of global copper mine supply ahead of a forecast shortage that’s expected to drive up prices. But on the fertilizer front, big questions remain over how much demand there will be for polyhalite, currently a niche product.
The Woodsmith mine makes the deal “very awkward indeed — it’s the reason why we didn’t think BHP would get involved with Anglo American,” said Ben Davis, a mining analyst at Liberum Capital Inc. “BHP clearly doesn’t think much of it.”
On Friday Anglo rejected BHP’s all-share offer, calling it undervalued and “opportunistic.” But some investors are positioning for BHP to raise its bid. Elliott Investment Management has built a roughly $1 billion stake in UK-listed Anglo.
BHP has already made divestments a condition of its takeover bid and stipulated that assets beyond copper, metallurgical coal and iron ore would be subject to “strategic review.”
Woodsmith is “implicitly in that bucket,” Davis said.
Last year, Anglo took a $1.7 billion writedown on the project while also unveiling plans to spend almost $5 billion to bring the mine into production by 2027 — taking its total spending on Woodsmith to $9 billion.
The project is “probably more of a nuisance than anything else,” said Maxime Kogge, an analyst at Oddo BHF SCA. “The project is on good tracks, but demand prospects are still quite elusive as the market does not really exist today.”
(By Jack Ryan)
Comments